Poverty and inequality: shooting at the right target

1. Poverty and inequality: shooting at the right target Alan Freeman Afreeman@iwgvt.org

2. Inequality under globalisation 1962 1982 2002 Population of the rich countries Income of the rich countries 14 16 21 Inequality Index Without China 13 13 20 With China Index: ratio of income per head in the rich and poor countries

3. What happened under globalisation? • In 1982, the income of the advanced countries was 13 times larger, in proportion to their population, than the rest of the world. • By 2002 this ratio had hence risen to 20. • The average rate of growth in real world income per capita fell from 5% in the 1960s to 2.5% in the 1990s

4. The limits of internal redistribution • Let us suppose a redistributionist God • Who will raise the income of as many people as possible in the poor countries to the average income of the rich countries • But will take no income at all away from the rich countries • How many people could this God make richer? • Total income of South in 2002 = $6,762 bn (avge $5/day) • Average income of North = $27,122 • Number of people which $6,762 bn could sustain at $27,122 = $6,762,000,000,000/$27,122 = 249,000,000 • = 5 per cent of the population of the South • In this extreme case, everyone else would get nothing at all

5. The basic problem • There are only two possible ways to raise the living standards of the general population of the world • Redistribute income away from the North, to the South • Raise the general growth rate of the world • Of course, some combination would work, eg • Raise the general growth rate of the South so that it is higher than that of the North • But what happened under globalisation (1982-2002) was the opposite • Global stagnation + global divergence

6. Real income has not risen World real GDP (constant year 2000 $)

7. Inequality has nearly doubled Inequality index: ratio of GDP per capita of rich countries to that of the poor countries

8. And growth is diverging 1970-80 1980-90 1990-2000 North America 24.6 24.8 20.9 128.9 68.1 19.9 SE Asia Euro Area 122.0 25.4 -8.4 -19.8 Rest 35.4 -14.5 Growth of GDP per capita

9. The US ‘performs’ only relatively

10. Whilst entire continents sink

11. What does ‘poverty’ mean? • Poverty targets such as $2 or $1 a day are ‘self-fulfilling’ as long as there is at least some growth, but don’t inform us about • Escape from the poverty trap which requires above-average growth, that is a reduction in inequality • The crisis of governance • Human development is minimal and, under ‘globalisation’, went into reverse

12. Problems unsolved by PPP-based poverty targeting • The social problem – a larger and larger number of people are completely excluded from society • The sustainability problem – larger and larger parts of the planet are excluded from economic growth • The political problem –‘global’ elites cannot govern. • They are alienated from the population • They are shackled to policies which defend their private interest at the expense of development

13. Measures of poverty based on need • CEPAL • ‘Poverty’ = unable to purchase a basic basket of goods • ‘Indigence’ = unable to eat every day

14. Percentage of poor people

15. Global distance - the number of people in Latin America living under: • $1 per day (UN target 1): 9,470,000,000 • $3 per day: 37,620,000 • £5 per hour (UK minimum wage): 90,000,000 • Venezuela 1981: 90% average $241 • Venezuela 2001: 97% average $147 • http://iresearch.worldbank.org/PovcalNet/jsp/index.jsp

16. The minimum wage in Latin America